The Inland Empire is on track for recovery in 2011 although the region is expected to trail neighboring counties in terms of a full rebound.
The Inland Empire was hit harder by the recent recession compared to other markets, and vacancies in its office market continue at record-high levels. Moves by many tenants to close secondary Inland Empire locations coupled with speculative office buildings that came to market during the downturn created an oversupply.
The first quarter saw more signs that the Inland Empire office market cautiously is moving in a positive direction.
That’s despite a decline in demand in the first quarter, resulting in 123,738 square feet of negative net absorption. The Inland Empire West saw 40,425 square feet of positive absorption but that was offset by the east submarket, which had more than 164,000 square feet of negative net absorption.
The overall vacancy rate was 24% for the first quarter. That’s a slight increase from the prior quarter but below the 24.3% recorded a year earlier.
The Inland Empire’s low rents give the market a competitive advantage over neighboring counties. Landlords continue a strategy of advertising reduced rents aimed at attracting a broader range of tenants.
The overall average asking lease rate shed an additional cent this quarter to $1.73 per square foot.
No new office projects are planned, and ongoing construction remains minimal. There currently are two projects totaling 231,338 square feet under construction. Both are due to be completed over the next 12 months.
Construction is expected to make a comeback over the long term due to the market’s relatively low cost of doing business and abundance of vacant land.
Economic conditions in the region are projected to continue gradually improving this year and next.
A recent report by CBRE Econometric Advisors forecast that the Inland Empire will add 9,000 office jobs over the next two years, a modest gain but a clear reversal from the losses of recent year.
Other key drivers to the Inland Empire’s economic growth and recovery include improved housing affordability and a relatively low cost of doing business. The region’s history of strong population growth is expected to continue to attract residents and companies.
Analysis by CB Richard Ellis’ Global Research and Consulting.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
